Despite the shutdown of the Puna geothermal plant in Hawaii due to lava flows from the Kilauea volcano, Ormat Technologies Inc.'s chief executive does not expect a significant hit to the company's near-term earnings.
The shutdown of Puna, of which Ormat owns 63.25%, resulted in an approximately $7 million loss in second-quarter adjusted EBITDA compared to the same period of 2017, CFO Doron Blachar said on the company's Aug. 8 earnings call. Ormat also closed, in April, its acquisition of U.S. Geothermal Inc. in a deal valued at $110 million. Maintenance at the three operating assets added as part of the U.S. Geothermal deal required a shutdown at those facilities that ran longer than expected, management said, impacting electricity segment profitability.
Ormat reported second-quarter 2018 electricity segment EBITDA of $69.8 million, compared with $67.2 million in the second quarter of 2017. But Ormat expects the three U.S. Geothermal plants coming online by the end of 2018 will boost results from that segment, helping to offset losses incurred during the Puna shutdown.
"Despite the outage in Puna and the planned maintenance activity in the U.S. Geothermal power plants, and assuming we will receive the insurance reimbursement by the end of the year, we expect profitability in the electricity segment in the full year to be in line to last year's profitability," Ormat CEO Isaac Angel said. The company raised full-year 2018 adjusted EBITDA guidance to a range of $370 million to $380 million, assuming a successful resolution of insurance claims for the loss of profits at Puna by year-end.
The Puna assets have comprehensive insurance covering business interruptions, and Ormat has already received compensation for damage to the rig consumed by lava.
The company is in discussions regarding the insurance claim for loss of profit and property damage.
"It's very high insurance claim," Blachar said. "Obviously, the event is still continuing. So, we are discussing with [the insurance company] the timing and the magnitude of the reimbursement. And since it is a high volume, we do expect the insurance company might attempt to negotiate with us this issue. Our analysis is that this should help us."
The company increased its adjusted EBITDA guidance for 2018 to be between $370 million and $380 million, assuming successful resolution of Puna insurance claim.
The total revenue in the second quarter of 2018 includes the loss incurred in the first 30 days of Puna shut down as part of the insurance policy. This revenue loss amounts to approximately $3 million in the second quarter.
Angel said as of the day of Kilauea volcano eruption, Puna was supplying 30% of the electricity to the grid that powers Hawaii's Big Island. "It is a very, very significant part of the electricity (supply), and everybody is keying that this power plant to go online as soon as this thing is over. Unfortunately, as we all know, it's very, very difficult to estimate how long the Puna flow will continue," Angel said. He added that when the lave flow stops or slows significantly, it will take 18 months to bring Puna back online.